The Week Ahead: Greenland continues it march to independence, oil’s outlook improves and Nunavummiut go to the polls

By Kevin McGwin, Arctic Now - October 30, 2017

Note: Regular readers of the former Arctic Journal will be familiar with the Week Ahead, a weekly preview of some of the events related to the region that will be in the news in the coming week. After an involuntary hiatus caused by the closing of the Arctic Journal, Arctic Now is reintroducing the Week Ahead. Most Mondays we’ll provide you with insights into a handful of issues and events that relate to the region. If you have a topic you think ought to be profiled in a coming week, please contact us.

Greenlandic and Danish flags fly side by side. (Pixabay)
Greenlandic and Danish flags fly side by side. (Pixabay)

The spirit of ‘09

As Catalonia awakens today to find itself under the direct rule of Madrid, it appears that the Spanish region’s dream of a future as an independent state has all but evaporated.

This and prior developments in Catalonia have not gone unnoticed in Greenland, where independence from the Kingdom of Denmark continues to have the approval a majority of voters. But, with the exception of a statement issued by the chair of the commission drawing up the country’s first constitution, denouncing Madrid’s efforts to prevent the October 1 referendum, lawmakers in Nuuk have been pre-occupied with discussions about the country’s own situation.

Independence discussions in Greenland remain passionate, and, as in Catalonia, many issues begin or end with the independence question. Where the two diverge is that, in Greenland, the emphasis in is on when, rather than if, secession from the Kingdom of Denmark will happen.

This certainty stems largely from the 2009 Self-Rule Agreement between Nuuk and Copenhagen, which legally enshrined the country’s right to declare its independence when it saw fit.

Most lawmakers in Nuuk agree the answer to ‘when’ remains ‘not now’. Debate last week in Inatsisartut, the national assembly, confirmed that the consensus is that the country’s economic foundation needs to be in place first, Opinions about when that might happen differ, however, sometimes even within political parties.

Those supporting quick independence recognize the decision would likely result in a decline in living standards, but accept that this is the price of no longer having to answer to Copenhagen. What limited polling there is on the matter indicates that most prefer to wait, if doing so means avoiding economic pain.

The long-term view taken by Greenland allows Copenhagen to kick the issue down the road.

For Greenland, having a signed agreement with Copenhagen makes it easy to take a pragmatic view of the situation. The agreement, however, may be worth less than the political goodwill that governments in Copenhagen have shown towards Greenland and the Faroe Islands, another self-governing member of the Kingdom of Denmark, and which Madrid appears to lack in its approach towards Catalonia.

The threats to revoke Catalonian autonomy began after the Spanish supreme court ruled that the regional government’s plans to hold the referendum were unconstitutional. Ironically, the measures granting self-rule to Greenland, and a similar home-rule arrangement for the Faroe Islands, might not pass a legal challenge either, suggests Sjúrður Skaale, a Danish MP representing the Faroe Islands.

The fact that they have not, he says, underscores a significant difference between Madrid’s legalistic interpretation of Catalonia’s situation and the politically pragmatic view Denmark’s relationship with Greenland and the Faroes. Even if the agreements were to be disputed, Skaale reckons that the result would be a legal war of attrition, rather than the civil and economic unrest currently being seen in Catalonia.

For now, Copenhagen accepts that Nuuk and Tórshavn are on a gradual and irrevocable path towards independence. Dissenting views crop up on occasion, but they rarely gain support outside nationalist circles. The most recent of these came last week, when Thorkild Kjærgaard, a Danish historian with ties to Greenland, suggested that Copenhagen suspend self-rule and place the country under the direct state administration in order to help it get back on solid economic footing, and to sort out its social problems.

The terms of the Self-Rule Agreement allow Copenhagen to do so, but most would agree it would violate the spirit of the agreement. The pain that has caused for Spain is plain to see.

 Breaking better

This week, Shell and BP, two big oil firms, release their third quarter financial statements. With oil prices up 20 percent over the past three months to about $60 per barrel, expectations are that the two firms will follow the lead set by ExxonMobil, Chevron and Total, which last week all posted healthy returns on the backs of the higher prices.

More noteworthy than profitable quarters, say analysts, is the fact that firms have begun to pay dividends to shareholders on a more regular basis, a sign that the industry has righted itself after the tumble that began in 2014, when oil fell from $100 per barrel to $40 per barrel over the course of several months.

While the nascent rebound will put oil back in the news, the question for the region remains whether the industry’s improved financial footing will embolden producers to return to pricey remote exploration and production projects.

Worth keeping in mind when seeking to answer this question is that the return to profitability is built on two pillars: rising prices and lower production costs. When oil is selling at $100 per barrel, it’s hard not to make money. This, say analysts, promotes largess when it comes to production. It also justifies exploration projects whose payoffs may be far in the future.

When the price is falls to under $60, the focus shifts to using fewer hands to get more out of existing deposits. Long-term investments with uncertain outcomes, such as offshore Arctic and Canadian tar sands, are among the first in line to be eliminated.

The break-even point of projects in the Arctic varies considerably, depending on location. In 2016, Rystad, a Norwegian energy analysis group, reckoned the price span for the region was $50-$100 per barrel, an average price of $75 per barrel.

Although that would seem to put projects like Goliat, a Barents field operated by ENI, an Italian firm, safely in the black, the project remains an example for what can go wrong, even for the most accessible Arctic oil fields.

Awarded in 1997, oil was discovered in the field in 2000. After production was approved in 2009, ENI was supposed to start operating in 2013. A series of snags has seen establishment costs more than double and production, delayed until 2016, has since been interrupted a number of times. It is currently off-line after an inspection in September turned up a number of dangerous safety violations involving electrical installations.

To date, ENI has produced just 31 million barrels of oil from Goliat, and has set annual production target of 20 million barrels. Barring further setbacks, the firm expects that by 2022, it will have pumped half of the field’s 200 million barrels of recoverable reserves and broken even.

ENI claims its break-even point is $50 per barrel, a figure it confirmed earlier this month to Norway’s energy minister. This, according to Rystad, is in line with its estimates, but other analysts cite a higher price.

More importantly, lawmakers suspect the ‘socio-economic’ break-even point, which ENI has not disclosed, and includes payments to the Norwegian state, is far higher. When that is taken into account, the project, they fret, is unlikely to ever turn a profit for Norway.

That would be a bad break for Oslo.

Elections in Nunavut

In Nunavut, Monday is election day. A total of 72 candidates are standing for seats in the 21 member Legislative Assembly. It is the fifth time since the territory was created in 1999 that Nunavummiut elect legislators.

Regardless of the outcome of the races, the territory will be led by a new premier during the next four years. Peter Taptuna, who served on the Legislative Assembly for nine years, and became the territory’s third premier in 2013, did not run for re-election.

Nunatsiaq News, an Arctic Now partner, has been covering the election since campaigning began five weeks ago. For full coverage of the election, an overview of election issues and analysis of today’s results, please refer to their website.